Ultra rich worry about preserving family wealth

By Drum Digital

09 March 2016

Fundamental concerns by ultra-high-net-worth individuals (UHNWI) about preserving generational wealth have become more pressing than ever, according to the 2016 Knight Frank Wealth Report, launched in SA on Tuesday in partnership with Standard Bank Wealth and Investment.

The decade of research for the report found that the world of the wealthy is changing. Women are becoming more active in managing family wealth, children are encouraged to get involved in family businesses at an earlier age, and it is more likely that family wealth created by the first generation will be lost or dissipated by the second generation.

“Around the world, worries about this loss of wealth between generations are most likely to cause sleepless nights for UHNWIs. Fifty-two percent of respondents said they did not feel that their children would be encouraged to make their own wealth. Almost half added that their children would not know how to handle the investments,” said Tony Galetti, CEO of Galetti Knight Frank.

Andrew Shirley, editor of The Wealth Report, added that privacy, having the time to spend with family and friends and having one of a kind experiences are highly valued commodities by the world’s ultra-wealthy.

"Owning asset classes such as yachts offers access to all of this. We already see in our Luxury Spending Index, the high proportion of yacht ownership in the Pacific region,” said Shirley.

Deon De Klerk, Head of Africa and International for Standard Bank Wealth and Investment, explained that what has changed over the last decade is that it is now the second generation, rather than the third, which is likely to lose a family’s hard-earned wealth.

“Although the younger generation are being encouraged to become involved in the family business at an earlier age than ever before, there is no certainty that this strategy will succeed within UHNW families,” said De Klerk. Research shows that about 66% of children are not inspired to join the family business.

Across Africa, the majority of investors actively seek international diversification, with a strong emphasis on the acquisition of property.

The results of the Knight Frank Prime International Residential Index (PIRI) showed that the value of the world’s leading prime residential market prices rose by an average 1.8% during 2015, with Vancouver in Canada leading the rankings by a significant margin. Prices in the city accelerated by nearly 25% during 2015.

Factors contributing to Vancouver’s performance were a lack of supply and foreign demand, spurred by the weaker Canadian dollar.

A look at Africa on the PIRI "Top 100" showed that Cape Town occupied the 13th position with an annual increase of 6.9%; Johannesburg came in at the 26th spot with an annual increase of 4.0%; Nairobi occupied the 33rd position, recording growth of 2.9% and Lagos occupied the last spot, coming in 100th, with property prices dropping by 20%.

The value offered to international buyers in Cape Town can be seen by comparing costs with Monaco, which, for the ninth consecutive year, was named as the world’s most expensive city in which to buy luxury residential property.

In Monaco, $1m (about R15.4m) will buy just 17m² of accommodation. Hong Kong and London occupy second and third place offering 20m² and 22m² respectively for $1m. In Cape Town, however, that $1m will buy 255m².

The report indicates that the UHNWIs in Africa and Latin America show a much stronger propensity for private jet ownership than the global average. Poor commercial travel infrastructure within the regions combined with significant travel distances between business hubs on each continent seems to have contributed to this high demand.

The report highlights that within Africa the number of UHNWIs with luxury cars is 1.55 times the global average. Although wealth in Africa is extremely concentrated in certain countries, there is a growing potential for luxury brands including high-end auto marques.

It is highlighted that African parents, much more than other continents, over the past ten years have sent their children overseas for their education purporting that it is for better education and to broaden their perspective.

The report found that, although most markets, with the exception of South Africa, remain small by international standards, modern property development has gathered pace and the stock of investment-grade commercial property has increased.

“Large, fast-growing cities, such as Nairobi, Lagos, Dar es Salaam and Luanda will continue to offer the clearest investment opportunities. The growth of Africa’s consumer class will create opportunities for further development in the retail sector,” said Shirley.

“The logistics sector should also emerge in importance, particularly in key gateway locations such as Lusaka, Zambia.”